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Who Does What in Your Bankruptcy-Part 2

Posted by Kevin on January 20, 2020 under Bankruptcy Blog | Be the First to Comment

In a previous blog, we talked about what is expected of a debtor in bankruptcy and what you could expect from your creditors. In this blog, we are going to discuss two other significant players in Chapter 7 and Chapter 13 bankruptcies- the trustee and the Judge.

Under the Bankruptcy Act of 1898, bankruptcy judges served in both a judicial capacity and an administrative capacity. As part of the administrative function, judges appointed trustees to cases and the trustees answered to those judges. Over the years, however, this practice came under criticism especially when third parties were litigating against a trustee who may have been appointed by and answered to the judge that was deciding the litigation. Under the Bankruptcy Code of 1978, Congress addressed this issue by separating the judicial function from the administrative function. The administration of a bankrupt estate was assigned to a new office, the United States Trustee, which is a branch of the Department of Justice.

For Chapter 7 cases, the US Trustee has assembled a panel of individual trustees who serve as the representative of the estate. Most panel trustees in NJ are lawyers who practice bankruptcy law. However, there are a few panel trustees that are accountants or business persons. In Chapter 13, the US Trustee has appointed three standing trustees for New Jersey. The standing trustee administers all the Chapter 13 cases in his or her region.

The Chapter 7 trustee reviews the bankruptcy petition, schedules and other documents that are part of the filing; reviews financial documents of the debtor including tax returns; examines the debtor at the meeting of creditors; takes possession of non-exempt property of the estate, liquidates that property, and distributes the proceeds of the liquidation to the creditors in accordance with the Code after providing to the debtor that portion of the sales proceeds which are exempt. In fulfilling the administrative duties, a trustee can sue the debtor or other third parties to bring assets into the estate, and can challenge the right of a debtor to a discharge of debts.

In Chapter 13, the debtor keeps his or her property, and operates his or her business. The Chapter 13 standing trustee analyzes the filing, collects monthly payments and distributes those payments in accord with the Chapter 13 plan, conducts the meeting of creditors, can negotiate with the debtor as to the terms of the plan and object to a plan that does not meet the requirements of the Code.

In the typical Chapter 7, the debtor (or debtor’s counsel) will have some dealings with the trustee. In the typical Chapter 13, however, debtor’s counsel will have more significant dealings with the standing trustee and his or her staff. The debtor will see the trustee only at the meeting of creditors unless the trustee and debtor are involved in litigation within the bankruptcy.

Under the Bankruptcy Code, the judge handles judicial matters associated with the estate. In most Chapter 7 cases, the debtor has no involvement with the assigned judge unless there is pending litigation. In Chapter 13 cases, the debtor may need to go before the judge if the trustee or a creditor objects to the confirmation of the plan, or if there is pending litigation.